We investigated the development of 4- to 6-year-olds’ narrative skills in relation to their receptive vocabulary, grammar, and the home literacy environment. At Time One, 82 children aged 4 to 6 years completed standardised assessments of cognitive ability, vocabulary, and grammar. Narrative production and comprehension were assessed by the narration of a wordless picture book and questions about the book’s content, respectively. Parents completed a questionnaire about home literacy practices. Concurrently, vocabulary explained unique variance in narrative comprehension, but not narrative production. In addition, the teaching of literacy-related skills in the home was negatively related to both narrative comprehension and production, and the frequency with which parents and children engaged in interactive reading was positively related to narrative production. One year later, one aspect of the home literacy environment (print exposure) explained unique variance in later narrative comprehension, after controlling for earlier narrative skills. These data show that vocabulary and grammar skills and home literacy practices are related to different types of narrative skills and suggest that literacy experiences in the home make a unique contribution to the development of narrative comprehension and production.